How to Buy a Home in Bankruptcy

Reader Question: How can I buy a home that has been placed in a bankruptcy status?

This is actually a can of real estate worms we don't usually open, since our website caters mostly to first-time buyers. I would never recommend this strategy to a first-time buyer, because it can be fairly complex. People in this industry often joke that there are two "worlds" of real estate -- the normal world where the process is fairly straightforward, and the bankruptcy world where seemingly anything goes.

How you move forward would depend on the type of bankruptcy the homeowner filed (Chapter 7, Chapter 11, etc.) and many other variables. If most cases, the sale must be approved by the bankruptcy court, and I can tell you that they are usually in no hurry to get things done. The case may be tried as well, with attorneys on both sides weighing in for the debtor and creditors.

You can see why I don't recommend this process to first-time buyers, who make up our primary audience. Your best bet would be to hire a real estate attorney. They will know how to proceed and will be able to explain the benefits and pitfalls of buying a bankruptcy home.

You might also want to check out the PACER website, which is a fairly new development. It's the government's website that grants public access to court electronic records (hence the acronym PACER), and it has a database full of information on bankruptcy filings, real estate associated with those filings, etc.

If you're serious about this kind of transaction, I would suggest buying a book on the subject. Though most books on the subject of distressed real estate deal with foreclosures (a hot topic), you can find some that offer information on bankruptcy property as well.